Question

Exercise 8-14 Sales and Production Budgets [LO8-2, LO8-3]

The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Budgeted unit sales	11,000	12,000	14,000	13,000

The selling price of the company’s product is $18.00 per unit. Management expects to collect 65% of sales in the quarter in which the sales are made, 30% in the following quarter, and 5% of sales are expected to be uncollectible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $70,200.

The company expects to start the first quarter with 1,650 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 15% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,850 units.

Required:

1. Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

2. Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

3. Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

Answer 1

SALES BUDGET
			Q1	Q2	Q3	Q4	Year
Budgeted Sales units		11,000	12,000	14,000	13,000	50,000
Selling price per unit		18	18	18	18	18
Total Sales		1,98,000	2,16,000	2,52,000	2,34,000	9,00,000
EXPECTED CASH COLLECTIONS
			Q1	Q2	Q3	Q4	Year
Beginingg Accounts receivable	70,200				70200
Q1 Sales			1,28,700	59400			188100
Q2 Sales				140400	64800		205200
Q3 Sales					1,63,800	75,600	239400
Q4 Sales						1,52,100	152100
Total Cash Collections	1,98,900	1,99,800	2,28,600	2,27,700	855000
PRODUCTION BUDGET
			Q1	Q2	Q3	Q4	Year
Budgeted Sales Units		11,000	12,000	14,000	13,000	50,000
Add: Desired Ending Finished inventory	1,800	2,100	1,950	1,850	1,850
Total Needs		12,800	14,100	15,950	14,850	51,850
Less: Beginning Finished Inventory	1,650	1,800	2,100	1,950	1,650
Required Production in units	11,150	12,300	13,850	12,900	50,200